There are many smart ideas in Richard Daft’s 2009 book “Organizational Theory and Design,” with the most vital one being not all organizations should be structured the same. Your group is a band of likeminded workers traveling through an external environment, and how complex that environment is and how fast that environment is changing should affect your organization structure as much as the type of widget or service you produce.
First, the model: The matrix here shows the two vectors of environmental change and complexity. (Click image to enlarge.) If the world around you is stable and your business is simple, congratulations – your organization faces low uncertainty. A classic example is quick service restaurants such as McDonald’s, which use a proven franchise model to spread and stick across the international landscape. People like tasty, low-cost food, so once you perfect the organizational model, you’ll likely be around for a while.
But industries also fall into other environments: complex + stable, such as insurance companies, where building a service model is extremely complex but customers tend to stick for years; simple + unstable, such as the music industry, where what people want are basic music files yet the marketing and distribution models are changing each year; and our favorite, complex + unstable, which includes both aviation manufacturers and, yep, advertising agencies. If the world around you moves fast, and what you build is complex, you need a unique organizational strategy.
What do you do if you face high uncertainty? Daft suggests three organizational structures: buffering, transparency, or boundary spanning:
1. Meeting uncertainty with buffering
This approach is called “buffering,” where you create an internal team to help absorb the uncertainties in the external environment. Daft cites Walmart as an example: the giant company sells almost everything in locations around the world, and as it has grown it has added enormous complexity to its procurement, operations and marketing. At the same time, ecosystem response made Walmart a lightning rod, fairly or unfairly, on human resources (low wages!), environmental impact (pollution!), and local business concerns (hurting main street!) as it expanded. Daft writes that Walmart had to reorganize: “Managers went on the offensive. The company’s tiny public relations department was expanded to dozens of employees, including a ‘war room’ where former political operatives look for ways to dispute the claims of opponents. Additionally, Wal-Mart created two high-level executive positions to act as generals in the PR war…”
Buffering deflects and defends against uncertainty. However, it may not address the core external forces to really remold the organization to meet them in the future. In essence, this is a defensive model and creates an adversarial relationship between what you think you need to do and what the environment around you is saying. Walmart has now moved beyond buffering to make significant shifts in its business model, including becoming a role model in green energy, to respond to the outside forces of change.
2. Meeting uncertainty with transparency
A second approach is to remove the buffer and instead expose your inner core of operations or product development to the outside environment. For example, LG Electronics pays consumers to test smartphone prototypes. Eric Ries has enraptured Silicon Valley with his similar idea of rapid prototyping in “The Lean Startup,” where organizations include real market feedback in product development and “pivot” quickly when they learn what really works. When the Honda Element launched, marketers originally positioned the boxy, tiny SUV as a 20something hipster vehicle, with print ads showing the Element parked on a sunset beach with doors open and fully-reclining seats … suggesting it was (wink-wink) a great makeout vehicle for young people. But Honda’s marketing team was surprised when early sales scaled among older men in their late 30s and early 40s, who really wanted to haul their little kids around in a cool vehicle that did not look like a boring minivan. Exposing your organization to immediate market feedback with transparency can avoid such delays in market understanding and product response.
3. Meeting uncertainty with ‘boundary spanning’
The third idea from Daft is to extend your actual organization into the changing environment around you. Tear down your walls, and have some people work both for you and for the outside ecosystem. Some advertising agencies do this by sending teams to conferences such as SXSW to learn what new vital information can guide improvements in products or customer service. Fast-tracking new external data into internal systems allows organizations to not only improve how they communicate to changing environments, but to also make rapid, meaningful changes in their product development.
This third strategy has a key benefit — as you “boundary span” your team to groups outside your organization, you also create the opportunity to shift the outside perception of you. Speaking at conferences, writing in industry publications, connecting with partner organizations may at first feel like noncore activities. But if your environment is changing rapidly, it will pull in information to guide your service development and protect your margins, and also push out ideas that influence others.
The bottom line is if the world around your organization is changing fast, you have to plug your organization into that world.